California‘s Delivery of Prescription Drugs to Medi-Cal Recipients Undergoes Major Change on January 1st

California‘s Delivery of Prescription Drugs to Medi-Cal Recipients Undergoes Major Change on January 1st

California Governor Gavin Newsom’s first act after being sworn in as Governor in 2019 was to take aim at reducing the cost of prescription drugs for the state and improving Californian’s access to prescription medication. One component of the Governor’s plan was the change payment for and delivery of prescription drugs in California’s Medicaid program, Medi-Cal.

Medi-Cal, like many state Medicaid programs, has two delivery systems for covered benefits: fee-for-service, and managed care. More than 82% of the state’s 13.8 Million Medi-Cal beneficiaries get their care through the state’s capitated managed care program. For those beneficiaries, the state pays a contracted managed care plan a set per-member-per-month rate to deliver covered Medi-Cal benefits. The plan is responsible for contracting with health care providers, facilities, and suppliers to make covered benefits available to their enrollees when they need them. By contrast, in fee-for-service Medi-Cal, the state contracts with providers to deliver care to beneficiaries, and pays them directly based on the services they provide. Only a small portion of Medi-Cal beneficiaries receive care this way – mostly newly enrolled beneficiaries (who will eventually join a managed care plan), people with chronic conditions and tribal members who qualify for an exemption from managed care enrollment, and people in limited-scope Medi-Cal programs (which do not offer the full range of benefits).

Until the end of 2021, Medi-Cal managed care contracts include most, but not all, covered prescription drugs, which means that managed care plans negotiate with drug companies directly for payment of those drugs. Managed care plans also get to set their own rules for drug approval and scope of coverage, though each plan must cover all Medi-Cal covered drugs. Depending on the deal a plan has struck with a particular drug company, it may offer one drug for a particular condition without prior authorization, and require special authorization to obtain alternative medications to treat that condition, while another plan may only offer one of the alternative medicines without prior authorization. Some plans may offer 90 day fills of prescriptions, while others limit fills to 30 days. The current state of affairs can be confusing to navigate for providers, beneficiaries, and advocates alike.

The Governor believes that California will be able to obtain a better deal by negotiating drug prices for the entire Medi-Cal population at once, instead of relying on each plan to negotiate for its members. Thus, starting in 2022, California will “carve out” the prescription drug benefit for Medi-Cal. The new program is called Medi-Cal Rx. In Medi-Cal Rx, prescription drugs for Medi-Cal beneficiaries will be paid on a fee-for-service basis, even for people who are enrolled in a managed care plan for their other Medi-Cal benefits. People will still see their managed care providers to obtain a prescription, but those prescriptions will be reviewed by Medi-Cal Rx and not their plan, and if approved, will be filled at a Medi-Cal participating pharmacy. There will be one approval process, and one set of authorization and scope-of-coverage rules that will apply to prescription drugs for all Medi-Cal beneficiaries.

Other states have also been considering moving their Medicaid prescription drug benefit out of managed care and delivering drugs on a fee-for-service basis in recent years. Like California, these states are hoping to both save money and streamline access to care. While moving to a “carve out” model has promised these improvements in the long term, advocates fear that the transition will not be seamless, and beneficiaries may experience gaps, barriers or delays to access during the transition process. In California, Medi-Cal Rx has adopted several important protections to prevent these problems from occurring. These include a policy that will allow beneficiaries to continue to fill existing prescriptions for a period after the transition, even if their medication is not preferred in the new Medi-Cal Rx program. In addition, Medi-Cal Rx will provide for an informal complaint process when a beneficiary has concerns with a decision about a prescription, in addition to the existing state fair hearing process.

As other states consider moving their Medicaid prescription drug benefit out of managed care and delivering drugs on a fee-for-service basis, advocates should seek similar policies to ensure that beneficiaries have continuity of care during the transition, and ways to complain about problems if they occur. While the jury is still out on whether the wholesale change in the delivery of the Medi-Cal prescription drug benefit will deliver on the state’s promise, we will be closely monitoring California’s transition and reviewing the state’s data to see whether Medi-Cal Rx is able to realize its goals of improving access without delays or disruptions in care arising. While the promise of reducing state health care costs may be the impetus for this change, it is critical that millions of low-income Med-Cal beneficiaries who depend on these drugs for their health and even their lives, do not suffer the consequences if access is not maintained or even improved.


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